CL — Colgate-Palmolive Co.

Will it survive?

• Can it pay its interest? 12.4×
  Comfortable
  Operating income $3.3B ÷ interest expense $267M

  Operating profit covers interest with the kind of margin Graham wanted for a defensive holding. Necessary, not sufficient — it says solvent, not cheap.

• How heavy is the debt? 2.4×
  Moderate
  Total debt $8.0B ÷ operating income $3.3B

  Years of operating profit it would take to repay all debt. A first read, not a credit rating: it's gross debt (not netted against cash) over EBIT (not EBITDA), and a cyclical year distorts it.

• How long is cash tied up? 27d
  Tight
  DSO 30 + DIO 91 − DPO 94 days

  Days cash is tied up between paying suppliers and collecting from customers. Lower is better; a long cycle means growth itself eats cash.

Is it a good business?

• Return on invested capital 36%
  Exceptional
  NOPAT $2.4B ÷ invested capital $6.8B (debt + equity − cash)

  The rate the business earns on the money tied up in it — Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; below ~8% the company may destroy value as it grows. Asset-light businesses (R&D expensed, little capital) read artificially high — pair this with Owner Earnings.

• Owner Earnings (free cash) margin 18%
  Cash machine
  Owner Earnings $3.6B = operating cash $4.2B − capex $564M

  What an owner could take out without starving the business. That's 18% of revenue. Treating stock comp as the real expense it is (less $155M of SBC) leaves $3.5B. Honest caveat: capex here blends maintenance and growth, so steady-state Owner Earnings may run higher (see capex vs. depreciation).

• Are earnings backed by cash? 1.97×
  Cash-backed
  Cash from ops $4.2B ÷ net income $2.1B

  How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy — growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.

How is the cash used?

• Where do the earnings go? 33%
  Reinvests most of it
  Dividends + buybacks $1.2B ÷ Owner Earnings $3.6B

  Of $3.6B Owner Earnings, $1.2B (33%) went back to shareholders — $0 dividends, $1.2B buybacks. Net of $155M stock comp, the real buyback was about $1.1B. Returning most of it signals a mature cash machine; reinvesting most could mean a long runway — or empire-building. The split doesn't say which; the return earned on it (see ROIC) does.

• Investing or harvesting? 0.90×
  Maintaining
  Capex $564M ÷ depreciation $630M

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth — or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency — or a melting asset base). The ratio won't tell you which; the filings will.

Durability & moat — 2016–2025

A moat is a high return that doesn’t fade, reinvested at high returns. Here is what the record says — judgments, not another chart of the numbers.

• Profitable years 10 of 10

  Never lost money over the record — the earnings stability Graham insisted on.

• Return on capital ≥ 15% 10 of 10 yrs

  A moat shows up as a high return on invested capital that holds year after year — not one good vintage.

• Operating margin 25% → 19%

  Margins are slipping — competition or costs are biting in.

• Reinvestment — incremental ROIC 14%

  Reinvested capital earned only a modest return — growth is getting expensive.

• Owner earnings growth +4%/yr

  Free cash to owners grew about 4% a year over the record.

• Worst year 2022 · 16.1% op. margin

  Stayed profitable even in its hardest year — the resilience that survives recessions.

• Share count −1.1%/yr

  The share count is shrinking — buybacks are quietly growing your slice of the business.